California foreclosures drop sharply

California witnessed a steep fourth-quarter decline in the number of homes pushed into the repossession process, indicating California’s foreclosure mess will continue to fade in 2013.

The real estate firm DataQuick reported a 37.9% decline in notices of default during the final three months of 2012 when compared to the same period the year before. It was the lowest level since the fourth quarter of 2006. A notice of default is the first formal step filed in California’s foreclosure process.

A steadily improving economy has helped. And the vast number of underwater borrowers — those who owe more on their homes than those properties are worth — have continued to pay their mortgages instead of walking away, leading to fewer home repossessions.

“Home values increased through most of 2012, and the rate of increase picked up toward the end of the year,” DataQuick President John Walsh said. “That means fewer and fewer homeowners are underwater.”

The decline in foreclosures last year has helped boost home prices and has aided a general market recovery. After scrutiny was placed on foreclosures by state and federal regulators, banks have largely turned to short sales and other kinds of loan workouts for those borrowers who cannot make their mortgage payments.

DataQuick also reported the number of trustees deeds filed on California properties also declined dramatically in the fourth quarter. The trustee deed is filed when a home is lost to foreclosure. The number of those filings fell 32.4% when compared to the same period the year before.